Commercial mortgage loan servicing is a document-intensive business. A single loan file may contain many different documents related to the terms of a loan, including, for example, security instruments, memoranda, appraisals and the like. Loan officers, underwriters, asset managers or other personnel on the lender's staff frequently receive and capture data from these documents and report this data for a wide variety of uses in the course of originating, servicing, and/or selling commercial mortgage loans and assets.
In the course of a securitization, the lender or originator typically transfers the loan into a legal entity known as a Special Purpose Vehicle (SPV) or a trust. The SPV structure provides the investor with protection if the originator becomes bankrupt and makes it easier for the originator to classify the transfer of loans or assets as a sale. The SPV issues securities whose principal and interest are paid by cash flows generated by the loans. The SPV passes the consideration paid by the investors to the originator. The securities issued by the SPV are subject to securities laws and regulatory authorities such as the Securities and Exchange Commission. As such, it is necessary for the lender who originates the loans to abide by laws, regulations and customs regarding full disclosure of information for use by purchasers of the securities.
At the time of the sale of the assets to the trust or SPV, the lender must make representations and warranties that usually include a statement to the effect that there are no material errors in the data and/or documents provided by the lender to purchasers for the purpose of evaluating assets. If a material error is found in the data, the lender may need to repurchase the loan from the trust. This could potentially cause significant losses to the lender and potentially damage the lender's reputation for reliability in the securities markets. Furthermore, these representations and warranties may cover significant characteristics of the portfolio of loans and exceptions to underwriting policies. The support for making many representation and warranty statements lies originally in the loan documents and is aggregated in data files by the lender and then delivered to investors for use in portfolio analysis. A lender who is unable or unwilling to aggregate the data contained in the documents can cause an investor to perform labor intensive due diligence on every asset in the portfolio. Such investor due diligence requirements may cause the potential investor to discount assets. Other complications can include assets that are unprofitable for the lender to sell or which simply cannot be sold due to unknown risks.
Due to the emphasis on the accuracy and delivery of data and documents, it is customary for a lender to hire an accounting firm to audit data files relative to source documents contained in the loan file to ensure consistency between source documents and all data provided to outside parties via a prospectus, for example. The accounting firm then typically issues a “comfort letter” that notes any discrepancies or abnormalities in the data.
In one example, a securitization may contain as many as several hundred loans, each with several hundred documents. A data file is provided to all prospective investors and contains many individual data points that must be tied to a specific document in the loan file. Prospectus material, loan sale agreements, and economic valuation models are based on this data. Because loans are usually made over a long period of time and may come from a number of lenders, a great challenge is presented by collecting, validating, standardizing, and distributing data to meet the standards required by the securities market.
In the typical industry process, documents are accumulated over time and then “scrubbed” all at once immediately prior to securitization. In a conventional process, it is typical for the lender to accumulate loans through origination and acquisition over a period of a year or more. At the point of securitization, the lender reviews all files in the portfolio and performs substantial due diligence at great expense to aggregate the data into a format suitable to investors. Because documents are presented in a wide variety of formats and are handled by many different parties throughout the process, there is ample opportunity to misplace or misinterpret documentation.
Therefore, there is a need for systems and methods that improve the efficiency of the document collection and storage process, ensure accurate transfer of data from loan documents into servicing databases for analytical and servicing processes, and facilitate the distribution of data and documents to any appropriate user.